The Republic filed photo
An exterior view of Cummins Columbus Engine Plant in Columbus, Ind., Friday, Oct. 7, 2022.
Cummins Inc. on Thursday reported a one-time gain from the separation of its filtration business while first-quarter revenue dipped slightly compared to the first quarter last year.
The Columbus-based company reported $8.403 billion in revenue in the January-March period, down 1% compared to the first quarter last year. Sales in North America were flat, while international sales declined 1% due to lower demand in China and Europe.
Net income soared to $2 billion in the first quarter, up from $790 million a year ago largely driven by a $1.3 billion net gain from the separation of the company’s filtration business, now a standalone company called Atmus Filtration Technologies Inc.
On a per-share basis, Cummins reported net income of $14.03, up from $5.55 during the same period last year. After excluding the gain recognized and costs associated with the divestiture of Atmus and restructuring actions, earnings per share came in at $5.10 during the first quarter of this year.
Cummins’ first-quarter revenue just missed Wall Street expectations of $8.45 billion, but beat earnings per share expectations of $5.07.
“We continued to see strong demand from customers in the first quarter of 2024, reflecting the quality and performance of our products,” Cummins Chair and CEO Jennifer Rumsey. “We delivered solid profitability and also completed the separation of Atmus, allowing Cummins to continue its focus on advancing innovative power solutions and positioning Atmus to pursue its own plans for profitable growth.”
Segment performances
Components: Sales of $3.3 billion in the first quarter represented 6% decrease compared to the same period in 2023, the company said. Revenues in North America decreased by 5% and international sales decreased by 8% primarily due to lower demand in China and Europe.
Engine: Sales of $2.9 billion were down 2% compared to the same quarter in 2023. On-highway revenues increased 1% driven by strong demand in the North American medium-duty truck market and pricing actions. Sales were flat in North America and decreased 8% in international markets due to lower demand in China and Europe.
Distribution: Sales of $2.5 billion represented a 5% increase compared to the first quarter of 2023. Revenues in North America increased 2% and international sales rose 14%. Higher revenues were driven by increased demand for power generation products and pricing actions.
Power Systems: Sales of $1.4 billion rose 3% compared to the same period in 2023. Power generation revenues increased 11% driven by increased global demand, especially for the data center market. Industrial revenues decreased 8% primarily due to weaker demand in oil and gas markets.
Accelera: Sales of $93 million were up 9% compared to the fourth quarter of 2023. Revenues increased due to increased electrolyzer installations.
2024 outlook
Cummins said it is raising its revenue and profitability forecast for 2024 due largely to strong global demand but is still projecting full-year revenue to decline compared to 2023.
Overall, the company is projecting that its revenues will decline 2% to 5% this year compared to last year.
While the revenue forecast is unchanged from before, previous projections assumed that Cummins would be able to include Atmus’ revenue for the full year, the company said. Even though Atmus is now a fully independent company, Cummins said it was able to maintain its revenue guidance this year because of strong global demand.
Cummins also is projecting that earnings before interest, taxes, depreciation and amortization — a measure of the company’s overall financial performance — to be 14.5% to 15.5% of sales this year. That is an increase from the previous forecast of 14.4% to 15.4%.
“We have raised our expectations on revenue and profitability for 2024 due to continued demand for Cummins’ products and services,” Rumsey said. “We do still expect slowing demand in some of our key markets in the second half of the year,” said Rumsey. “Despite lower sales, Cummins is in a strong position to keep investing in future growth, bringing new technologies to customers and returning cash to shareholders.”
Cummins Chief Financial Officer Mark Smith told financial analysts on Thursday that the company’s “baseline assumption today” is that a potential cyclical downturn would not be “as sharp or as deep as a normal cyclical downturn.”
Analysts react
Local analysts said that Cummins is currently operating in a tough environment, particularly for some of the traditional areas of its business.
“It’s just a tough environment for the traditional Cummins business that the non-traditional areas of Cummins — which is Accelera and power gen — those look promising,” said Craig Kessler, president and chief investment officer at Columbus-based Kessler Investment Group.
For his part, Roger Lee, director of research at Columbus-based Kirr, Marbach and Co., said Cummins is “managing things really well” despite the possibility of an economic slowdown.
“I think management, overall for the quarter, that they’re managing things really well through a time when we’re anticipating a slowdown, but they’re still charging hard a lot of their initiatives, and they’re still unlocking value where they can,” Lee said.
Both analysts pointed toward “optimism” around Cummins’ Power Systems business segment, especially increased global demand in the data center market.
“A lot of that plays into the whole artificial intelligence thing,” Lee said. “…Cummins is definitely, for the future, they’re thinking about hydrogen, electrolyzers, they’re thinking about clean energy, but at the same time they’re also benefiting from all the stuff you hear about artificial intelligence. The data centers, a lot of them need power gen and a lot of them need backup power.”
Kessler said “Cummins is in a pretty good position to benefit” from the move toward artificial intelligence and increasing demand for data center capacity, and also emphasized Accelera’s increasing sales.
“I think we are starting to see the transformation of Cummins taking shape in this new age of artificial intelligence and electric propulsion,” Kessler said.
At the same time, local analysts said they don’t anticipate that a potential economic slowdown would be as severe as prior downturns.
“It’s not like a scary cliff like we’ve seen in the past,” Lee said.
Kessler, for his part, said a potential downturn would most likely be more of a “downshift” than “hitting the brakes.”
“Even if we go into a recession, I don’t think the growth in power gen is going to drop off as much as heavy-duty engine sales,” Kessler said.
Cummins stock closed at $280.29 Thursday, down 3.58 (-1.261%).
By Andy East — The (Columbus) Republic is a sister newspaper to the Daily Journal.
